The Importance of Accurate Budgeting
The creation of an accurate budget is crucial when it comes to figuring out how much money we have to spend and where to spend it. If the Board of Education accepts budgets that are inaccurate, they could end up spending money they don’t have, or lay off staff they might otherwise keep. In my mind, the annual budget is the key tool available to the Board for managing the finances of the school system.
After I rebuilt a ten year history of the budget and determined that the spending trends led to a scary future, I set out to evaluate budgeting accuracy. How did the proposed budgets match up with what actually happened? What I found was shocking. The Administration appeared to underspend its budget every year. Now, the budgets only started providing actual spending information in 2008, and even then it was on a 2 year lag, so I only had the actual spending figures for 2006-2009. But the total underspending over this period appeared to be a whopping $25 million.
Yet, for each of those years the Administration told us they would need to tap their Reserve Fund – essentially a rainy day fund – to help sustain the budget. The Administration’s budgets called for using almost $16 mil from the Reserve Fund over the four years. Well, we obviously never used those funds since we underspent the total budget by $25 million. That meant there should have been a cash build up of $9-10 million available to the school system.
But where is the cash?
The budget documents don’t give us information about cash balances. I decided I was going to have to dig deeper into this. I would need the financial audits of the school system, and I quickly made a FOIL request for them. The Administration denied my request. That didn’t surprise me since they had already charged me almost $500 for the past budgets.
While I appealed to the Superintendent for my audits, I had plenty of time to think about all of this. On the one hand this was great news. Maybe we weren’t facing the fiscal crisis I had envisioned. Maybe we wouldn’t need to cut staff. On the other hand, the seeming lack of financial controls was very worrisome. How can the Board do its job if the budgets are wildly inaccurate? In fact, the Board in planning to cut staff when perhaps they don’t need to at all.
In the next segment I will discuss how I get my audits, find the cash, and start finding some interesting things as I go through the budgets and the audits line by line.
Adam D. Egelberg, CFA
